Out with the old and in with the new

On we go to 2009, and a happy new year to all readers of the blog.  I’ll leave my resolutions for now (still a work in progress…) but here are my investments for the year;

2009 is already booked to be a pretty poor year – the recession is unavoidable and the earthquake that was the banking collapse is stull rumbling.  Sterling has collapsed against the Euro – having traded at around E1.50 for so long we are now close to parity – E1.00.  The price of oil is now around $40 having run up to $147 in the summer.  These are huge moves.  Gold ended the year at around $875.

Oil must recover in time, although the short term looks a mixed picture.  Sterling’s move looks a bit technical and I suspect it will come back at some point, but it won’t come all the way back.  I think gold has to go higher, possibly quite a lot higher, and it feels like a good investment for the year.

The world’s economy may be in a terrible state, but the show must go on and there’s going to be value in the equity markets for the selective investor.  It might be an extreme case of “out with the old and in with the new” – 2009 won’t be easy for anyone who has fallen behind the curve.  Woolworths is perhaps an example of a business that was past its sell by date long ago but had been hanging on – they had no chance in the new tougher environment but the online retailers will thrive at their expense.

The gambling industry will probably be fine – it has proved more recession resilient than one feels it should be in the past and there is sure to be consolidation at some point.  The right tech companies will do well, although the market will be applying different models now and will not show much patience waiting for revenue.  Ecology should still be high on the agenda and this maturing marketplace should hold opportunities.

Three picks then for 2009;

I’m very happy with progress at Betfair, but they are not quoted, so my betting industry pick is Sportingbet.  I like SBT because;

  1. They’ve been a dog for a few years because of the disposal of their US facing business, but it feels like that stuff is fully in the price now.  They’re not far off their all time lows.
  2. The Euro move looks big news.  The bulk of their revenue comes in Euros, and in Sterling terms this just grew by 30%.  Their operational costs of the business however are spread far and wide, but with plenty in sterling.  They report in sterling.  There is, to some extent, a “double whammy” here.

In the tech arena I’ll go for Phorm.  This is a very tough read – they have complex technology that sits within ISPs and optimises advertising revenue.  There are privacy issues which are tough to fathom (see Wikipedia), and they have no revenue yet – the revenue opportunity again is not easy to assess.  Their share price has fallen from £35 in early 2008 to £2.90 now.

Phorm is a greed and fear play – the upside is huge, the downside is 100%.  It has next to no defensive value and in a market running scared it is the first stuff that gets chucked out.  It might be a bust but it could also be a ten bagger – I like the odds.

Hydrodec have a unique process that invigorates and cleans toxins from transformer oil (and thus recycles the oil).  Transformer oil is a highly refined oil used in large quantities in electrical generators – it becomes toxic and has to be replaced regularly.  Recycling this oil is clearly more environmentally friendly, and is possibly also more economical.

The value of HYR is, to some extent, a function of the transformer oil price – if oil is cheap it is cheaper to replace than to clean and vice-versa.  There is a lot more to it – it takes a long time to build a recycling plant and it isn’t possible for companies to react quickly to oil price movements.  There are potentially ecology type grants and regulation that could play a part.  2009 is a big year for the company as they go from concept to a revenue generating and hopefully profitable company.

That’s it for investments – I’m not an expert analyst and there could be horrible errors/omissions in the above analysis (also I am, to some extent, selling my own book as I have decent shareholdings in a couple of the above).  I’m interested to hear any alternative investment ideas from any other blog readers.